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Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1100.
- Add a stop-loss at 1.0800.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.0900 and a take-profit at 1.0800.
- Add a stop-loss at 1.1100.
The EUR/USD price successfully made a strong bullish breakout after the Federal Reserve downshifted for the second straight meeting. It darted higher and reached a high of 1.100, the highest point since April 4 of last year. The euro has jumped by almost 5% this year.
Fed and ECB divergence
A divergence is slowly happening between the Federal Reserve and the European Central Bank (ECB). On Wednesday, the Fed decided to lower the pace of its interest rate hikes as it assessed the state of the economy. In its decision, the bank hiked by 0.25% for the first time in months. It will also continue implementing its quantitative tightening policy.
On the other hand, with the European economy doing well and inflation falling, economists expect that the ECB will hike rates by another 0.50%. The view is that the bank is significantly behind the hiking curve. It was among the last central banks to increase interest rates in 2022. Even with the 50 basis point increase, European rates will remain significantly lower than in the US.
The other main catalyst for the EUR/USD price will be the upcoming non-farm payrolls (NFP) data. Economists expect that the economy added jobs at a lower pace while the unemployment rate rose to 3.6%. Recently, many companies, including Intel and IBM have announced thousands of layoffs.
EUR/USD forecast
The EUR/USD price has been in a strong bullish trend in the past few weeks. During its recovery, the pair rose above the 50% Fibonacci Retracement level. It also rose above the important resistance level at 1.0945, the previous highest point of the year. The pair has cruised above the 50-day moving average while the Relative Strength Index (RSI) has moved to the overbought level.
It has also risen above the Ichimoku cloud indicator and the resistance point at 1.0196, the neckline of the small head and shoulders pattern that formed last year. Therefore, the outlook of the pair is still bullish, with the next important level to watch being at the psychological point at 1.1100.
On the flip side, a drop below the support at 1.0820 will signal that there are still more sellers in the market. It will open the possibility of the pair falling below the support at 1.0597 (38.2% Fibonacci retracement level).
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